If AI can’t be sold, shut it PDF Print E-mail
Thursday, 30 January 2020 05:01
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Govt gets it right, but test is its action if no buyer is found


The government has done well to remove most of the mindless restrictions put in place the last time it sought to privatise Air India (AI)—these ensured no one bid for the haemorrhaging airline. What it says about the earlier decision-making process is another story. A complete exit from AI instead of retaining 24% like the last time around will reassure potential bidders that there will be no government interference. Allowing sale-and-lease back can make the purchase debt-free, especially since the Centre is absorbing more debt, and being able to carry forward unabsorbed depreciation and losses helps cushion the balance sheet; this, and the relaxed eligibility criteria, means more potential suitors.

Senseless criteria, like the need to run AI “on a going-concern basis” and “on an arms-length basis from (the buyer’s) other business”, have been done away with, though it is not clear why the AI brand is to be maintained. The idea, possibly, is to placate the RSS/swadeshi groups who refuse to understand that the concept of a national carrier is outdated, but an existing-airline buyer not wishing to retain the AI brand will find this a problem. AI’s falling market share shows its brand loyalty isn’t as high as many think, and, as seen in sectors like telecom, price-value is more compelling than brand value. The decision against a VRS for AI’s heavily unionised and pampered staff—after the merger, AI and Indian Airlines pilots got into a fight over who would fly certain aircraft—could be a deal-breaker as a new owner may not want to take on this burden since it could complicate operations. And, given the Centre’s generous VRS for BSNL and MTNL employees to make the telcos leaner, it is not clear why this was not done for AI.

The good news is the government saying, should a potential bidder want, it is open to offering more concessions; to ensure no allegations of favouritism arise later, it must offer these concessions to all bidders who express interest but choose to walk away during the sale process. Without this, these bidders can allege that they would have bought AI had they been given the same concessions. Though the government claims global ‘ownership and control’ rules restrict it from allowing foreign airlines to buy more than 49% of AI—this would make AI’s bilateral rights useless—this is not strictly true; a CAPA paper gives instances (bit.ly/2Ry6Fn1) where countries/airlines have negotiated this. Had the government worked on this and not dismissed it outright, more foreign airlines may have been interested in AI. Despite the sensible changes this time around though, the government may still not get a buyer in these tough times. Whether it will shut down the obviously unviable airline—at least in government hands—is then the critical question since it will signal the government’s attitude towards PSUs.


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